A limited constitutional government calls for a rules-based, freemarket monetary system, not the topsy-turvy fiat dollar that now exists under central banking. This issue of the Cato Journal examines the case for alternatives to central banking and the reforms needed to move toward free-market money.

The more widespread use of body cameras will make it easier for the American public to better understand how police officers do their jobs and under what circumstances they feel that it is necessary to resort to deadly force.

Americans are finally enjoying an improving economy after years of recession and slow growth. The unemployment rate is dropping, the economy is expanding, and public confidence is rising. Surely our economic crisis is behind us. Or is it? In Going for Broke: Deficits, Debt, and the Entitlement Crisis, Cato scholar Michael D. Tanner examines the growing national debt and its dire implications for our future and explains why a looming financial meltdown may be far worse than anyone expects.

The Cato Institute has released its 2014 Annual Report, which documents a dynamic year of growth and productivity. “Libertarianism is not just a framework for utopia,” Cato’s David Boaz writes in his book, The Libertarian Mind. “It is the indispensable framework for the future.” And as the new report demonstrates, the Cato Institute, thanks largely to the generosity of our Sponsors, is leading the charge to apply this framework across the policy spectrum.

Search form

Education ‘Savings’ Accounts Have Same Problems as Regular Vouchers

I really hate to disagree with people that I both like and have tremendous respect for, but a new voucher program that passed recently in Arizona has been getting a lot of attention, and a few points need to be addressed.

The program is referred to as an Education “Savings” Account, although the accounts are not filled with personal savings but with government funds collected from state taxpayers.

Unfortunately, as Andrew Coulson has noted before, these ESAs retain the most important problems of regular voucher programs and add new ones as well:

This is still a third-party-payer system that uses government funds. These ESAs are not like HSAs. HSAs and education savings programs like Coverdell accounts are filled by the person who earned the money in the first place. This is a government education account filled with public funds, accessible to eligible families.

If the ultimate goal for ESA proponents is to have broad-based choice, why not let families who can afford it pay for education out of their earnings? Tax credits can accomplish this. ESAs make all families dependent on government funds sitting in accounts that the government controls.

Because these are still government funds, the legal threats to vouchers will not be significantly mitigated. Each ruling striking down vouchers, including in Arizona, has relied on the fact that government funds carry restrictions on their use in education – even if there is an intervening choice on the part of parents. The Arizona program is unlikely to survive another challenge.

Because these are still government funds, they are more likely than credits to bring serious new regulatory burdens. Andrew Coulson’s historical evidence and recent statistical analysis of existing credit and voucher programs demonstrates what common-sense tells us: government money brings regulations. Citizens and politicians think that all institutions taking government funds should be accountable to the government, not just parents. Education tax credits provide for direct accountability to both parents and the taxpayers who earned the funds being expended. Educational freedom is more easily retained within a fully civil society system which doesn’t require government action or legislation to address every problem.

Only tax credits respect the values and preferences of the taxpayers who earned the money being spent on education. ESAs still compel all taxpayers to support, in some small measure, the educational choices of all families. This compelled support increases the pressure to regulate and restrict choices. Interest groups and citizens attempt to ensure that their tax dollars are spent according to their values and preferences, using the only means possible in the public sphere: rules and regulations. Credits confer on each taxpayer the means to affirmatively support the kinds of education with which they are comfortable.

Long-term complications and problems are likely to arise with the use of third-party ESAs. Because unused funds revert at some point to the state (as they are not personal savings), individuals will not manage the accounts as they would HSAs and actual education savings accounts. Many families will likely spend out each year rather than shopping for value as promoters of HSAs suggest will occur. Alternatively, if some families do save excess funds from early years, they will likely over-consume in late high school or college because the money will otherwise revert to the state. It is not difficult to imagine all manner of problems this scenario could produce, from simple waste to various kickback schemes through which a person can cash out their government education accounts. Management of fraud and abuse will be extremely difficult in a large-scale, fully developed ESA system that relies on government, third-party funding.